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Judge Denies Terraform Dismissal Plea, Disagrees with Ripple Precedent

Key Takeaways
  • US District Judge Jed Rakoff dismissed Terraform Labs' motion to reject the securities fraud lawsuit brought by the SEC
  • This marks a pivotal decision for the cryptocurrency sector
  • he judge did not apply the recent court ruling in favor of Ripple Labs to the Terraform case, suggesting a shift in the legal approach to cryptocurrencies
01-Aug-2023 By: Pankaj Gupta
Judge Denies Terrafo

Terraform Dismissal Plea Denied: A Turning Point in Crypto Law

On Monday, U.S. District Judge Jed Rakoff rejected Terraform Labs' plea to dismiss the securities fraud complaint brought against the company by the Securities and Exchange Commission, making it a crucial decision for the cryptocurrency sector. The ruling rejects defense claims that the SEC lacked jurisdiction and that Terraform Labs' TerraUSD stablecoin did not qualify as an unregistered security, allowing the SEC's lawsuit against Terraform Labs and its founder Do Kwon.

Rakoff, crucially, refrained from applying the logic of a recent court ruling in favor of Ripple Labs to the Terraform case.

A court recently rejected a plea to dismiss the lawsuit against blockchain startup Terraform, emphasizing a distinction from the precedent-setting Ripple judgment. The prosecution of Terraform in the cryptocurrency-related case will now go on to the discovery stage.

Given that the Ripple ruling had previously categorized Ripple Labs' XRP coin as not being a security, the judge's opinion indicates a potential change in the legal approach to cryptocurrencies. The Ripple ruling was cited by Terraform's defense, but the judge highlighted that each cryptocurrency case should be evaluated on its own particular facts.

Terraform argued that the SEC lacks jurisdiction

Representatives for Terraform Labs claimed that the SEC lacked jurisdiction over both the business and its founder in a prior move for dismissal. Additionally, it disputed the opinion of the agency that some coins, including Terra Classic (LUNC), TerraUSD Classic (USTC), and Mirror Protocol (MIR), are securities.

Additionally, it claimed that "Congress is asking the SEC to wait for Congress to act" in addition to "engaging in a robust debate over how cryptocurrency should be regulated."

Judge Rakoff, however, dismissed Terraform's objection that referred to the "Major Questions Doctrine," dismissing the claim that the SEC lacked the jurisdiction to regulate crypto tokens without Congressional permission.

The legal and cryptocurrency worlds are both closely watching this decision, which might establish a new precedent in Bitcoin law. Future legislation and regulations pertaining to digital assets may be impacted by the Terraform case. The trial date has not yet been announced, but more actions are anticipated.

Also Read: IRS New Guidelines on Crypto: Rewards From Crypto To Be Taxed

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